A dangerous void. Despite the negative repercussions of the Irish people's decision to block the Lisbon Treaty (and this column has certainly not chosen to tone down or adopt a conciliatory tone in commenting on this decision), the EU can, fortunately, continue to take action and make decisions - for example, in a move towards common foreign policy or at least towards a more coordinated policy in the energy sector. The current void in this area symbolises the most blatant and dangerous shortcoming in the EU's external relations, with negative and colossal consequences that are sometimes tragic. In a recent talk (a “colloquy” organised last week by Europeans Present Reality), the director general of External Relations at the European Commission, Eneko Landaburu, condemned the current situation in which each member state acts alone, in line with its own national strategy, in defence of its own interest, without understanding to what extent all interests are bound together, and to what point, for certain aspects, the European response is the only effective response, to the benefit of everyone. Mr Landaburu deplored the current deafening silence emanating from Europe. The EU should take up the reigns of a world energy project: when it speaks with a single voice, as it has done on climate change, it gains in weight and credibility. Landaburu even supported Jacques Delors' idea of creating a specific European treaty on energy, based on the ECSC treaty model. Coordination of national positions would be the first step.
We are nowhere near this but something is shifting. Three symptoms can be underlined.
1. The “unbundling” compromise and relations with Russia. A compromise is a compromise; by definition, it does not entirely satisfy anyone. I am not sure whether the formula reached by the European Parliament and the Council, is considered unsatisfactory by those who believe that for the effective and competitive functioning of the internal market, the unbundling of production and transport networks should be total. But a step in this direction has been made and this is the external aspect that I will be looking at today. From this point of view, what is happening appears to me to be essential for EU-Russia relations, which in practice means relations with Gazprom.
The director general of Gazprom, Alexi Miller, has made numerous triumphant declarations that his company will become the biggest in the world. He has also affirmed the goal of becoming the main direct supplier of gas to consumers in the EU. In this respect, he is not willing to abandon the dual role of producer and transporter. Moreover, it is obviously indispensable that valid rules for EU companies are also valid for third country firms active on the European market.
Judging by the evidence, the EU would be able to relaunch the principles of the Energy Charter that Russia chose to sign but which it has never sought to apply. I am not talking about resurrecting the charter itself, an illusory objective, but about reintroducing the spirit of it and some of the content in a new partnership agreement the EU will be negotiating with Russia. Just before leaving the presidency, Vladimir Putin signed the Law on foreign investments in strategic industries, which introduced tough restrictions on the stakes of foreign companies in several essential economic sectors. It appear obvious that the EU has to negotiate with Moscow on the basis of reciprocity: the EU should apply the same restrictions on Russian firms that Russia applies to European companies, in the energy sector and elsewhere. Gazprom is a priority case.
2. Beginning of action on oil price fixing. The scathing denunciation of the oil per barrel price fixing, by the US justice minister (this column reported on it last week in EUROPE 9676) prompted an important initiative. In its meeting last week in Osaka, the Finance G8 (Germany, France, UK, Italy, US, Russia, Japan and Canada) called on the International Monetary Fund (IMF) and the International Energy Agency (IEA) to examine “the real and financial facts behind the recent hike in oil prices…and their effects on the world economy”. A report is expected out in October (see our newsletter the day before yesterday). The Italian finance minister, Giulio Tremonti, had already announced the day before the meeting in his declarations to the Wall Street Journal that he intended to back this initiative. He also suggested an immediate increase in the level of deposits required by financial operators for concluding futures options on the New York NYMEX. Tremonti declared that “there are more futures options than there are barrels…the financial component exceeds real sales and purchases”.
The French minister, Christine Lagarde also called for the IMF investigation and said that if further information indicated speculative behaviour, it would be possible to take more effective action. The British Chancellor of the Exchequer disputed the scale of the speculative element in the explosion of oil prices and, in accordance with the US secretary to the treasury, Henry Paulson, confirmed the theory that the essential causes in this explosion are economic, primarily an increase in demand. The request for an investigation, however, was retained, together with a request to producer countries to increase their production and their investment in extraction capacity and refinery.
Oil prices took pride of place in the G8 debates. Some observers believe that even requesting an analysis of speculative factors (symbolised by transactions that are totally detached from demand and production - future options in oil, which only exist on paper) could have already introduced a political risk to speculators. This would be a real advantage to the real economy, even if the statistics only displayed losses.
European Commission too timid. It would be important for this week's European Council (which is, in any case, planning to raise the question of oil price tax aspects) to broaden the debate by including speculation in it, in an effort to shape a European position on the matter at the G8 summit on 7-8 July. The European Commission's communication, “Meeting the Challenge of Oil Price Rises” (published in our EUROPE/Documents series No. 2493, which our subscribers received at the beginning of the week), includes an interesting analysis of the causes and effects of soaring oil prices but is disappointing on the subject of “financial speculation”. It is too weak and expresses doubts but does not make any criticism. The Commission has written: “The level of influence of increased activity from non commercial investors on oil prices is unclear at this stage. There are some indications that linkages between the forward and spot markets have led to recent increased short term price volatility, although there is a need for further analysis of these developments.” We might have expected something a bit firmer, something more courageous from the Commission. This column has cited more precise elements, such as statistical data (EUROPE 9603); the position taken by the US justice minister was of another dimension. After what has been discovered and denounced in the behaviour of some of the financial community, we could have expected something more explicit. Valéry Giscard d'Estaing was much clearer (EUROPE 9669).
3. Member states' attitude to gas-pipelines. In this area, the absence of European coordination has led to disasters. Do we need to recall a few examples? The Turkish veto on French participation in the Nabucco project led Gaz de France to turn towards the rival Russian South Stream project, which the Italian company ENI (playing a leading role) and other Community transit countries were already supporting. According to some observers, completion of the Nabucco project could even be called into question. Following the Turkish decision mentioned above, member states did not consult each other and the European Commission and European Parliament did not say a word. There was also a total lack of consultation about the decisions of several member states (or that of their oil companies) to participate in South Stream. Let's be clear: this participation may be logical or justifiable, it is the lack of consultation that is deplorable.
This case is just one example. We are aware of the destruction provoked by previous European energy supply projects by the North: real political storms involving Poland, Germany and the Baltic states. There's no sense in going back to them and difficulties remain.
There are now some signs indicating a rising awareness of the need for a minimum of consultation, as well an awareness about the consequences caused by a lack of consultation. It is too early to talk about them in any detail but the European institutions are concerned about them, and we can hope that the harmonised external energy policy dossier will eventually be concluded at a heads of state and government level. The French Presidency may tackle this issue and prepare cooperation. It is one aspect that is at least as important as the other aspects making up European energy policy: energy savings, diversification of sources and the development of alternative energies.
Conclusion. We can see that out of the three aspects cited, the EU is still at a stage of good intentions and preparatory work but the scale of the stakes at play is beginning to be understood. The institutional innovations and Lisbon Treaty are not essential for taking action.
(F.R/trans.rh)